The Weekly Trade Report – by L.C.
The USMCA may move soon to a vote on the Senate floor, but the National Taxpayers Union (NTU) writes that “North American trade policy is too important to rush.” Congressional leaders leading the stampede are behaving like “timeshare salesmen…in trying to create a sense of scarcity and urgency where none exists.” The NTU is right. For one thing, the USMCA apparently grants the UN’s International Labor Organization (ILO) the authority to supersede US labor law. That’s been a longstanding objective of the UN-loving Democratic Party. A US under the ILO’s thumb could be forced to rescind all the states’ hard-won right-to-work laws. The US could also be compelled to support the UN’s Paris Agreement on anti-fossil-fuel climate measures and the Democrats’ Green New Deal.
Here’s the relevant quote from the Congressional Research Service, Congress’s non-partisan research body, when it analyzed the USMCA on December 20th, 2019:
USMCA would require parties to
* Adopt, maintain, enforce, and not derogate from statutes and regulation regarding the International Labor Organization (ILO) Declaration of Rights at Work.
* Adopt, maintain, enforce, and not derogate from
environmental laws, including seven multilateral
environment agreements…
Is this President Trump’s idea of “America First” nationalism — to let the USMCA put the US under the UN’s ILO and Paris Treaty? It looks like Nancy Pelosi pulled a fast one, and US Trade Representative Robert Lighthizer blinked.
The unnecessary rush
If the concerns above are not quickly addressed, the Senate Finance Committee will hold its hearing on the USMCA on January 7th. It will be reported out of committee quickly and then pass easily on the floor. Under fast-track rules specified in US Trade Promotion Authority (TPA) law, trade agreement wording can’t be amended or filibustered. Most senators are expected to vote for it. Then, since it has already passed the House, the president is expected to sign it immediately, which will complete US ratification.
But, as the NTU further writes, so many requirements of TPA law are being ignored that, as “Sen. Pat Toomey (R-PA) and Rep. Justin Amash (I-MI) have suggested…the revised USMCA should not even be eligible for consideration under TPA.” The NTU also notes that “Higher tariffs on cars will increase prices for consumers, and higher tariffs on parts will discourage car manufacturing in the United States.” This hardly accords with a “White House statement earlier this year that ‘President Donald J. Trump is making this the best country in the world to build and
buy cars.'” The NTU report concludes in boldface:
Suggestion To Legislators: Don’t Vote Until You Know What’s In USMCA
First ever US-Japan bilateral trade agreement takes effect
Meanwhile, the first-ever bilateral US-Japan trade agreements entered into force on January 1st, grabbing little attention in a Washington preoccupied with impeachment. The agreements are being strongly welcomed by much of the US farm sector. Although less comprehensive than the Trans-Pacific Partnership (TPP) that the Trump administration bowed out of, the agreements level the playing field in Japan for US farmers vis-a-vis competition from the TPP-11 countries and the EU.
But the US-Japan Trade Agreement could face a serious challenge. Japan’s TPP-11 partners could object to Tokyo making separate arrangements with the US that disadvantage them. They or other countries could file a WTO complaint against the US and especially Japan for lowering tariffs on a trading partner without it being part of a comprehensive free trade agreement. WTO rules require that bilateral tariff cuts be part of an agreement covering “substantially all traded” goods. Because the two countries aren’t expected to immediately begin talks for a comprehensive accord, the tariff cuts in the bilateral agreement violate WTO rules.
Whether or not a challenge occurs depends on whether any WTO member bothers filing a complaint, given that the WTO dispute settlement system is currently not fully functional. But if no complaint is filed and the bilateral tariff cuts are allowed to be implemented, that itself would be another blow to the rules-based global trading system.
US-China phase one trade agreement
The US and China are finally set to sign the “phase one” US-China Trade Agreement. Vice Premier Liu He will lead a Chinese delegation to Washington on January 13-16th. He will sign for China and President Trump for the US. Although that is the plan, it hasn’t been publicly confirmed by either side.
But when the details of the not yet released US-China phase one agreement are released, the president may get pummeled by the Democrats running for president and even some Republicans. They could ask why the US is settling for an agreement that is paltry by comparison with the punishing tariffs the US economy had to endure, the Chinese abuses the trade war was supposed to address but didn’t, and the president’s soft talk so far on China’s human rights abuses.
Phase 2 not on Chinese wish list
There are no indications when or whether talks might begin for a “phase two” agreement. Washington is reportedly more eager to begin than Beijing, which realizes the US would push for new concessions it has refused to make during the past two years of talks.
The main mystery is over just what commitments Beijing made regarding the promised stepped-up purchases from the US – especially regarding specific agricultural products. Such commitments could violate WTO rules. The phase one agreement appears to also include a Chinese commitment to break WTO non-discrimination rules. The extent of that problem will become clear when the text is released. (The vehicle quota side letters in the USMCA are another blow to the WTO since any “voluntary” export restraints inserted in a trade deal are WTO-illegal. )
Brexit finally
Brexit is another significant trade event and finally has some hard deadlines. The UK House of Commons is set to finalize approval of the government’s 541-page Withdrawal Agreement the week of January 6th followed by European Parliament approving it probably on January 29th. Brexit takes effect on February 1st. Nonetheless, for the next 11 months, the “transition period,” the current trading and cooperative arrangements between the UK and EU will remain in effect.
During the 11 months transition London will be free to negotiate free trade agreements with other trading partners, though it may be complicated or impossible to conclude them before the future UK-EU relationship is known.
President Trump has made it clear that he wants the US to begin and conclude formal talks with London quickly, and discussions have already begun.
The 11-month transition period ends on December 31st, 2020. The two sides are expected to use the 11-month period to negotiate a new trade and broader relationship with each other, including arrangements for cooperation in areas formerly regulated by the EU.
Renewed “troubles” in Northern Island?
There are huge pressures within Northern Ireland and Scotland pulling against the United Kingdom and opposing Brexit. The Johnson plan runs a risk of rekindling the Catholic-Protestant (republican-unionist/loyalist) strife in Northern Ireland that was the cause of “The Troubles.” That was a period of extreme violence during much of the 20th century that was finally pacified by the 1998 Good Friday Agreement, which led to a power-sharing accord. The agreement was greatly aided by the fact that both parts of the Irish island belonged to the EU and therefore didn’t have a hard border between them. It remains to be seen if the checkpoint-in-the-sea can work. Thus, there are perils ahead for the unity of the UK, the hard-won Northern Ireland peace, and reaching a post-Brexit UK-EU accord.
The EU’s Hogan wants a fresh start
EU Trade Commissioner Phil Hogan is planning to meet with US Trade Representative Lighthizer this month in Washington. Hogan told the Irish Times on December 30th, “We agreed to meet in Washington in mid-January to discuss the long list of issues causing strain in the [US-EU] relationship….I will be seeking a reset of the EU/US trade relationship on issues like tariffs on steel and aluminum and the threat of US tariffs in response to a digital tax in Europe.”
Hogan said he’ll raise the WTO crisis in his talks with Lighthizer, including reforming the institution to better deal with industrial subsidies and forced tech transfers, e.g., the key issues regarding China. That suggests that he intends to pursue the trilateral initiative begun by his predecessor to ally with the US and Japan in fighting Chinese abuses, primarily through the WTO. In a comment clearly critical of Washington’s obstruction of the Appellate Body, Hogan also said, “Extensive [WTO] reform will be needed to ensure that a rules-based system can be agreed and enforced. You can’t have rules and discipline without having a good referee to adjudicate and enforce their implementation globally.”
But with so many US violations of WTO rules, it’s beginning to look like the administration’s unspoken plan is to terminate rather than repair the WTO.
A bittersweet 25th anniversary
The WTO came into being on January 1st, 1995. Because of troubles with the US and China, its 25th anniversary will be bittersweet despite the unprecedented growth it has fostered. In a recent study, “The WTO at 25: Assessing the Economic Value of the Rules Based Global Trading System,” the German-based Bertelsmann Foundation gives a highly positive account of the WTO’s contribution to world prosperity. It assessed “the economic value generated…by…trade and welfare that was rendered possible through the WTO’s system” and found “that gains are large and widespread, in particular the US, China and Germany are large beneficiaries of the multilateral rules based trading System.”
According to the report, the world gained $855 billion, or 1% of global GDP, from the WTO’s existence. The US’s gain from membership was $87 billion, that for China was $86 billion, that for Germany was $66 billion, for Mexico it was $58 billion, Japan $33 billion, South Korea $31 billion, France $25 billion, and the UK $22 billion. This reflects the unsurprising finding that “nations with strong exports and production are the main beneficiaries of membership.” WTO members’ exports rose by an average 14% while non-members exports fell by 6%.
US citizens and legislators should be asking, however, why the US exited one good international body, the TPP, and is now actively undermining another beneficial one, the WTO, while about to hastily pass a USMCA agreement that puts the country under UN supervision with respect to labor and environmental policy.
L.C. is the pen name of our trade correspondent, who also consults for Japanese business.
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